The Molotov–Ribbentrop Pact of August 1939, between Nazi Germany and the Soviet Union, stated that Lithuania was to be included into the German "sphere of influence". However soon after World War II began in September 1939, and the agreement was amended to transfer Lithuania to the Soviet sphere.[4] This was granted in exchange for Lublin and parts of the Warsaw province of Poland, originally ascribed to the Soviet Union, but by that time already occupied by German forces.

Following the 1940 Soviet ultimatum to Lithuania and subsequent invasion of 15 June 1940, President Antanas Smetona fled the country. Before doing so, in accordance with the Lithuanian constitution, he turned over his duties on a provisional basis to Prime Minister Antanas Merkys. The day after Smetona's departure, Merkys announced he had deposed Smetona and had taken over the presidency in his own right. On 17 June, at the behest of the Soviets, Merkys appointed a left-wing journalist, Justas Paleckis, as prime minister. Merkys then himself resigned, making Paleckis acting president as well. For all intents and purposes, Lithuania had lost its independence.

Paleckis appointed a Communist-dominated "people's government" with Vincas Krėvė-Mickevičius as prime minister. This government dissolved the Fourth Seimas and announced elections for a "People's Seimas" on 14 July. Voters were selected with a single list provided by the "Union of the Working People of Lithuania," which was merely a front for the recently re-emerged Communist Party of Lithuania. The new People's Seimas met on 21 July and had only one piece of business—a resolution that transformed Lithuania into the Lithuanian Soviet Socialist Republic and petitioned the Soviet Union to admit it as a constituent republic. This resolution carried unanimously. On 3 August, the Supreme Soviet of the USSR "accepted" the petition and admitted the Lithuanian SSR as the 14th republic of the Soviet Union. Lithuania now maintains that since Smetona never resigned, Merkys' takeover of the presidency was illegal, and all actions leading to the Soviet annexation were therefore ipso facto void.

The United States, United Kingdom, and other countries considered the occupation of Lithuania by the USSR illegal, citing the Stimson Doctrine, in 1940, but agreed not to forcibly violate frontiers of the USSR at post-World War II conferences. The United States refused to recognize the annexation of Lithuania or the other Baltic States, by the Soviet Union, at any time of the existence of the USSR.

Lithuania declared independence from the Soviet Union on 11 March 1990, and was the first Soviet republic to do so. All legal ties of the Soviet Union's sovereignty over the republic were cut as Lithuania declared the restitution of its independence. The Soviet Union claimed that this declaration was illegal, as Lithuania had to follow the process of secession mandated in the Soviet Constitution if it wanted to leave.

Lithuania contended that the entire process by which Lithuania joined the Soviet Union violated both Lithuanian and international law so it was merely reasserting an independence that previously existed. The Soviet Union threatened to invade, but the Russian SFSR's declaration of sovereignty on June 12 meant that the Soviet Union could not enforce Lithuania's retention.

Iceland immediately recognised Lithuania's independence. Most other countries followed suit after the 1991 Soviet coup d'état attempt, with the government of the remaining USSR (Moscow) recognising Lithuania's independence on 6 September 1991.

The 1990 per capitaGDP of the Lithuanian Soviet Socialist Republic was $8,591, which was above the average for the rest of the Soviet Union of $6,871.[6] This was still half or less than half of the per capita GDPs of adjacent countries Norway ($18,470), Sweden ($17,680) and Finland ($16,868).[6] Overall, in the Eastern Bloc, the inefficiency of systems without competition or market-clearing prices became costly and unsustainable, especially with the increasing complexity of world economics.[7] Such systems, which required party-state planning at all levels, ended up collapsing under the weight of accumulated economic inefficiencies, with various attempts at reform merely contributing to the acceleration of crisis-generating tendencies.[8]